The European Commission has approved Sara Lee’s acquisition of Earthgrains. The operational synergies between the companies may not amount to much. However, Earthgrain’s technology should be a major boost. The bakery firm’s distribution and category management systems should allow Sara Lee to make major savings, particularly if it develops them to include even more efficient supply chain management technologies.


Sara Lee Bakeries UK Ltd

Sara Lee announced its intention to purchase leading bakery Earthgrains last month; the company this week received clearance from the European Commission to go ahead with the merger, valued at $2.8 billion. Earthgrains, which manufacturers fresh-bakery and refrigerated-dough products in the US and Europe, expects revenue of $2.7 billion for this fiscal year. Sara Lee, meanwhile, has barely grown revenues for three years. Excluding exceptional items, it recently reported a 5.3% drop in fiscal Q4 revenues from $4.5 to $4.2 billion.

To revitalize its flagging performance, Sara Lee has embarked on a reshaping plan that reaffirmed its focus on marketing repeat purchase, non-durable, branded packaged products. Crucial to the overhaul is the decision to narrow its operational scope to three businesses: food and beverages, intimates and underwear, and household products. Since the program began in May 2000, Sara Lee has divested 12 non-core operations, including its Coach leather goods unit. It has also laid off more than 8,000 workers since January 2001.

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As well as quadrupling Sara Lee’s annual bakery sales, Earthgrains will also give the company ownership of a state of the art direct-store distribution system comprised of 4,900 company-owned routes. These routes will expand Sara Lee’s direct-store distribution coverage to 61% of the US population, offering significant expansion opportunities.

Sara Lee should benefit greatly from Earthgrains’ advanced category management technology through proprietary ordering and assorting software. Earthgrains is currently employing scan-based trading with six major customers in 2,100 stores, allowing the company to synchronize supply and demand trends to increase sales and reduce invoice errors. This should allow Sara Lee not only to increase sales but also reduce operational costs.

It will also be in Sara Lee’s interests to extend Earthgrains’ retailer relationship technologies, through employing advanced supply chain management technologies. Such technologies will be crucial to Sara Lee’s drive to become a true global consumer products giant.

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To view related research reports, please follow the links below:-

The World Market for Bakery Products

The 2000-2005 World Outlook for Frozen Bakery Products